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Gamma Bank would typically accept the following as financial collateral:

Equities and Convertible Bonds: Included in a main market index due to their liquidity and value recognition.

Commercial Debts (Receivables): Owed to a company, which can be factored or used as collateral.

Mutual Fund Shares and Similar Investment Vehicles: Subject to daily quotes ensuring transparency and liquidity.

Unrated bonds, even if traded on a recognized exchange, carry higher uncertainty and lack the creditworthiness validation that rated bonds possess, making them less preferable as collateral.

References

Verified information on acceptable financial collateral from the document ​

When an asset manager for a large mutual fund engages in forward exchange transactions traded in a clearinghouse system, the primary risks that arise are exchange rate risk and credit risk. Exchange rate risk is inherent in any foreign exchange transaction due to potential fluctuations in the currency's value over time. Credit risk is also significant as it involves the possibility that the counterparty may default on their contractual obligations.

References:Details on the risks associated with forward exchange transactions can be found in the "How Finance Works" document, which discusses the implications and risks of financial instruments, including forward contracts​​.

Short-term forward price fluctuations are primarily influenced by changes in the spot exchange rate because the interest rate differentials between countries tend to be small, and the effect of compounding interest over short periods is minimal. This relationship emphasizes that in the short term, the primary driver of forward prices is the current spot rate rather than interest rate differentials.

References:This explanation aligns with financial theories related to forward pricing and the factors affecting short-term foreign exchange markets​​.

Futures contracts have several key characteristics that differentiate them from other types of financial instruments. The features include a fixed notional amount per contract, fixed dates for delivery, and daily margin calls to manage credit risk. Futures are standardized contracts traded on exchanges, not over-the-counter (OTC). OTC trading typically refers to securities or derivatives that are not listed on formal exchanges and are traded directly between parties, which is not a feature of futures contracts.